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FINANCE

HEALTH SAVINGS ACCOUNTS (HSAs)

AN EXCELLENT TAX PLANNING TOOL

HSAs are
by Michael Wiener, E.A. designed to
H SAs were established under the Medicare Prescription Drug, and must be made by the due date of allow eligible

Improvement, and Modernization Act of 2003 thus making the individuals tax return not including
2004 the first year these accounts were available. Under Code extensions (April 15 following the end individuals
Sec. 223, the Tax relief and Health Care Act of 2006 added taxpayer- of the tax year.) For 2016 the maximum to save for
friendly changes. regular HSA contribution is limited to current
An HSA is a tax-exempt trust or custodial $3,350 for self-only coverage and $6,750
account exclusively for the purpose of paying for family coverage. The contribution medical
qualified medical expenses of an eligible ceiling is increased by $1,000 for expenses on a
individual. HSAs are designed to allow individuals aged 55 or older.
eligible individuals to save for current medical When a HSA distribution is used to tax- free basis.
expenses on a tax-free basis. Contributions pay for qualified medical expenses, the
are tax- deductible if made by an individual, distribution is excludable from income.
or excluded from income if paid by an A “qualified” medical expense is any Code Sec. 213(d) medical
employer. The earnings in HSAs are not expense (with a few exceptions) for the account owner, his or her
taxable. Distributions are not included in income if used to pay for spouse or tax dependents.
qualified medical expenses. Amounts contributed to an HSA belong Distributions that are not for qualified medical expenses are
to the individual and continue to be available to an individual that includible in income and subject to an additional 20 percent tax
changes employers or leaves the work force. HSAs may be available unless the distribution was made because of death, disability, or
through cafeteria plans. after the individual enrolls in Medicare. Also, distributions to
The HSA is in structure an account much like an IRA. The reimburse medical expenses do not have to be made in the year
account must be established and maintained by a qualified trustee the expense is paid.
or custodian such as banks, trust companies, brokerage houses, and An HSA can be a tax efficient tool to help with the cost of
insurance companies. HSAs are available to individuals who meet the providing health care for you and/or your family. But as with most
following four requirements: tools, care must be used.
1. Covered by a high-deductible health plan (HDHP);
2. Not be covered under any other non-HDHP;
If you should have a topic that you would like me to
3. Not enrolled in Medicare benefits (generally, has not yet
discuss or if you should have a question, please feel free to
reached age 65); and
call 239.403.4410 or e-mail me at
4. Cannot be claimed as a dependent on another
michael@mwtaxandaccounting.com.
person’s tax return.
For 2016 and 2017 a high-deductible policy is defined as one with 4280 East Tamiami Trail
a deductible of at least $1,300 for self-only coverage and $2,600 for Executive Suite 302-M | Naples, Fl 34112
family coverage, with out-of-pocket maximum up to $6,550 for self-
only coverage or $13,100 for family coverage. An individual will not An enrolled agent, licensed by the US Department
be eligible for HSA coverage if the individual is covered by another of the Treasury to represent taxpayers before the IRS for
health plan that is not an HDHP, although there are exceptions (such audits, collections and appeals. To attain the enrolled agent
as liability auto insurance) that do not jeopardize eligibility. designation, candidates must demonstrate expertise in
Contributions to an HSA are deductible as an AGI adjustment. taxation, fulfill continuing education credits and adhere to
This means that the contribution is deductible even if the individual a stringent code of ethics.
does not itemize deductions. Annual contributions must be in cash

74 Life in Naples | February 2017